China: Your ticket to expansion

China's remarkable transition from an underdeveloped nation to a world economic power has been called the Chinese Economic Miracle, and area companies have a golden opportunity to be a part of that miracle and drive business growth.

In partnership with Dan Paulson, president of InVision, IB is planning a 12-day excursion to China from May 17-28, and local business men and women are invited to explore opportunities to expand their businesses in the world's most populous nation. The group will leave Madison on May 17 for nearly two weeks of relationship building in the Chinese cities of Tianjin and Beijing, with opportunities to meet peers in China and determine the potential for partnerships, joint ventures, or overseas expansion with Chinese businesses that are looking to expand in the United States.

The tour group will be meeting with senior- level business leaders and Chinese government officials to begin building the relationships necessary to do business in China. In addition, the itinerary will be tailored to individual business interests, including one-on-one meetings with people who are in the same business or occupation.

While special visits are planned to the Great Wall of China, to the Forbidden City, and other cultural destinations, this is essentially a business trip. "This isn't just a tour," noted Paulson. "You're not just going over there only to see the Great Wall. This is about business."

China Syndrome

Since the end of the Cultural Revolution in the mid 1970s, China gradually has achieved impressive Gross Domestic Product and productivity growth without runaway inflation. The economic miracle is the result of reform-minded decentralization, the willingness to engage in provincial experimentation to test new models (a variation on U.S. states as the laboratories of democracy), various structural reforms (including reform of the trade system), and in something that economists believe America would do well to emulate: high savings rates.

This transformation has resulted in growing economic ties to the state of Wisconsin. Prior to 1999, China was not even among the state's top 15 export destinations, but it now ranks as Wisconsin's third-largest foreign trading partner, behind only Canada and Mexico, with $935 million in exports in the first nine months of 2010. That's a pace that would once again exceed the $1 billion mark in terms of Wisconsin exports to China.

Exports are an essential part of growth in both the Wisconsin and Madison regional economies. According to Lee Swindall, director of consulting services for the Wisconsin Manufacturing Extension Partnership, export-supported jobs in Wisconsin account for an estimated 8.5% of total private sector employment, and more than 20% of all manufacturing workers in Wisconsin depend on viable export markets for their jobs.

In Greater Madison, there are in excess of $3 billion in total exports annually. As share of the regional economy, almost 10% of what was produced here was exported in 2008 and 2009, Swindall noted.

Statewide, export-centered jobs command wages in excess of $59,000 per year, which is above the national average and represents the kind of high-paying jobs the state is trying to attract. Yet manufacturing surveys indicate that Wisconsin tends to lag behind other U.S. states in export development, and is significantly less advanced in the actual development of export capability.

As the demographics of consumption and demand change globally, Wisconsin companies will have an opportunity to drive growth in emerging markets, especially among people ages 18 to 50 in Asian and South American markets. "To connect to that demand, we'll need to develop a more aggressive export presence here because domestic demand will not, by itself, support the growth and continued profitability of manufacturing in Wisconsin," Swindall said. "We've got to connect with other global points of demand around the world if were going to have a prosperous and competitive future."

This stands in contrast to existing perceptions, even among some Wisconsin business people. Ken Wasylik, president of the Madison International Trade Association, said a great deal of the misperception is that international trade means we close a plant in Kenosha and move it to Guangdong [province] in China. "A lot of that is driven by the demand of the American people for lower-cost products," Wasylik stated. "In order to compete, that's why you have this big migration to Asia; not just from here in the U.S., but European companies have experienced the same thing.

"I sat through a U.S. commercial service program in November, and they said less than 10% of American businesses actually export. That really means the perception from 90% of businesses is that there is no market for their products outside the U.S., and that is false."

Lora Klenke, director of the agricultural market development bureau for the Wisconsin Department of Agriculture, Trade and Consumer Protection, believes such limited thinking leads to limited business performance. "The thing about agricultural exporting is that 96% of consumers live outside the United States, and they purchase and consume products," she noted. "That's why you need to look outside our borders if you want to increase your sales."

Klenke said China continues to have a growing population — it currently has an estimated 1.3 billion people — even with a policy of one child per family. Many of them have moved into the middle class and now have more disposable income. "Those are consumers with growing income, and they need to purchase infrastructure and consumer products across the board," she noted.

In China, direct foreign investment has been stimulated by the creation of special economic zones, primarily in the coastal areas. However, trade is increasingly the focus rather than contract manufacturing due to rising production costs in China. Wisconsin-based companies like Master Lock have decided to bring production back to Milwaukee, and others thinking of locating a plant abroad are going through a similar reassessment.

"It's partly a function of rising production costs," Swindall explained. "It's also a recognition that complex supply chain relationships, which involve many thousands of miles and weeks of transit time, come during a period in which just-in-time production pressures are ramping up on American manufacturers, and locating plants abroad increasingly is seen as non competitive."

The Madison business delegation will visit the districts of the Tianjin Economic Development Area and the Tianjin Free Trade Zone, which is the Chinese home of Wisconsin companies such as John Deere and Oshkosh Corp. In addition to meeting Chinese officials and business leaders, the trip will feature speakers from Wisconsin companies that do business in China.

Tianjin, a coastal city located 2-1/2 hours form Beijing, is considered one of China's up-and-coming cities. Several Fortune 500 companies already have facilities there, but there is plenty of room for growth. So instead of focusing solely on first-tier cities like Shanghai, Beijing, and Hong Kong, our Chinese hosts appreciate IB's interest in Tianjin and the state of Wisconsin's interest, as set forth in a recent Memorandum of Understanding negotiated by former Gov. Jim Doyle, with the centrally located province of Shaanxi.

"One of the criticisms we get from developing countries is that we'll typically come in when the market is already developed," Klenke explained. "One of the incredible things about the Shaanxi memorandum is that it's really taking an area considered a second — or third-tier city. It's not the number one export destination for our products, but it is poised for growth. We're getting in on the ground floor, and it will give us a lot of opportunities, especially with agricultural products."

Parts of the trip will be tailored to individual needs. For example, if a local health care executive wants to tour a Chinese medical center, connections with local health care administrators will be arranged. Also during the trip, manufacturers will be paired with a manufacturer and invited on-site to examine their counterpart's processes. Similarly, bankers will be paired with bankers, builders with builders, and professors with professors.

Cultural preparedness classes will be held before the trip. To accommodate effective networking, business travelers will be educated on the cultural nuances of doing business in China, and they will be schooled on Chinese business etiquette and learn how to conduct productive negotiations.

Since the Chinese government prefers to view this as a delegation to China, it is willing to underwrite various incidental costs, so the price of the all-inclusive (including meals, hotel, and airfare) trip has dropped to $5,450. For information about visas, passports, and the trip agenda, visit www.grow inchina.com/Summit/FAQ.html.

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